And the corporate impact come up mastercard and United Airlines are the latest companies to warn that sales profits are getting hurt. Manus welcome to daybreak europe. Hedges. To hedge your the defensive positions traders have put on especially in the bond market are already being shaken to the core. The biggest oneday drop since 2016. . Hat is your hedge, and nejra nejra fish you ask yourself what caused this must don . We saw the biggest move down in global stocks, one of the biggest in 10 years. The gain in Global Equities for 2020 wiped out. That theabout the fact spread for the coronavirus outside china was causing concern, or did equity markets finally wake up to what the bond market was signaling, that that that the 30yearold yield plunging . Manus i think what are the best articles is from Goldman Sachs saying, another 25 basis points down in terms of yield. A really bad surprise would be 35 basis points. My line of choice in the bond story this morning is one punter spend 12who million on a hedge, 1. 25 . Goldmans point is that there is another part of that to come to bear. I was late with my call. The bottom line for markets is that you on and gold. Yuan is stronger. The yuan believes, that the pboc may go for rrr cut or a deposit rate cut. Is that enough . We will hear from the ceo a little later on. 2000 and counting is a possibility. Good morning. Nejra good morning. We are seeing what u. S. And european features are signaling. Japan is coming back online and that is where the brunt of the today. Are in asia the u. S. Equity market had its worst day since february of 2018, more than 1 trillion wiped out from the u. S. Stock benchmark. To give your context, in 2019, we added 6 trillion. Features are pointing to a better the us to a positive open. The yen had its biggest jump in six months. The yen could get to 120 on recession fears to do with japan. Our top story, the spread of the coronavirus to regions outside of japan is parking fears of a pandemic. 200 cases in italy, 893 in south korea, 12 dead in iran, afghanistan, bahrain, oman and iraq confirmed their first cases. The World Health Organizations called that new cases concerning but they say the disease is still not yet. A pandemic there is also word of an experimental drug being tested. Gilead and disciplines results from two trials in china to come in april. Manus meanwhile, the Trump Administration said, it asks 2. 5 billion to battle the virus. More than 1 billion would be would go to work creating manufacturing, disturbing the vaccine, according to a person familiar with the matter. The impact of the virus on businesses is being felt worldwide. Must a card and the United Airlines emerged as the latest companies mastercard and the United Airlines a much does the latest companies to warn that profits are being hurt. The u. S. Benchmark closed down more than 3 yesterday. Volatility spiked. On murray has the chart but Annmarie Hordern has the chart that shows it all. It has the vix spiking. The wall street fear gauge surged 47 yesterday. We have not seen it levels like that since february of 2018, the market almost down. What we have here is a Third Straight day of gains. On top of that, in terms of points, the seventh biggest move ever for the vix. Citi says we could see more to the upside. Analysis showing 36 as the key resistance points, level. Nejra all. Nejra eyes will be on the vix the next few weeks Annmarie Hordern, thank you so much. Joining as as the guest host for the hour is dr Nannette Hechlerfaydherbe , she is the cio of Credit Suisse. Should investors brace themselves for more drawdowns in the equity market liquid saw yesterday . Dr. Hechlerfaydherbe i think there is a period of riskoff as long as the cases will show an increased momentum especially outside china. There are still areas of uncertainty likely to bring concern to equity markets. Manus netnet, good to see you. You. Ette, good to see when you look at the reverberations we saw yesterday, three standard deviation moves on the ugly markets, you think the repricing of the equity markets is a fair value for the possible slowdown from china and world growth . Dr. Hechlerfaydherbe i think it is always certainly from different measures, difficult to say what is fair value, especially when looking at on the one hand, a period of slowdown in growth, markets are reflecting that, but on the other side as well, centralbank responses. When Interest Rates are likely to go lower, at the moment, markets are expecting two cuts by the Federal Reserve, then there is also likely to be stabilization. From our standpoint, we have a position in as at a location with respect to equities that is reflecting these two forces. On the one hand, growth concerns that are likely to also drive earnings expectations negatively , but then on the other hand, the likely responses and support that will be expected from and perhaps also fiscal policy increasing the around the world. The nejra what about the bond markets and particularly the treasury market, are they pricing in the worstcase scenario of the coronavirus . The 30 year yield plunged to fresh record lows. The 10 year yield, not far off, hitting the handle hit in 2016 . Nanette it tells us that the yields are quite low compared to where we are standing, especially in the u. S. When you think about the economy in the states, it is certainly not as exposed to exports for example as European Countries are. Taken germany, as the other case in point here for a large export orientation. States, the groove impact might not be as pronounced. Perhaps disruption in supply chains will lift a little bit the Inflation Expectations up and from that angle, Interest Rates and bond yields may seem lower. At the moment, we think that there is quite a bit of value in inflation. Manus one of the guests we have regularly on the show sent to me through an encapsulation of what Central Banks have done. Emergingmarket Central Banks have been very aggressive. We have a wave of developed market Central Banks to come this next month. 80 of the world gdp now in easing mode. Samete cuts have the veracity in 2020 as they had in in 2020 thatity they had in 2019 . Nanette when we entered the year, we didnt think Central Banks would be eager to cut Interest Rates and be even more supportive than what they had done in 2019. Now, the answer will be dependent on how the coronavirus spreading is going to continue, and what the impact is going to be on the various economies. Just as an example, for the European Central bank, we think it is likely that they will in the second quarter, most likely in june, cut Interest Rate another 10 basis points. This is not an expectation we had two or three months ago. So it is giving a sense that those economies most affected, in terms of the exports, in terms of the Growth Outlook, may also be the ones that will have to take a more supportive angle the last year. Nejra interesting, well you say that about the ecb, you continue to think the fed will be reluctant to cut. You were talking about your equity exposure and how it is neutral across portfolios. Why do you prefer to take a pro cyclical risk among commodities now . Nanette as we enter the period, we need to last hour equities exposure before the whole outbreak. We had wanted commodities as a better riskreward, because it would contain both the cyclical side, for example with energy and industrial metals, but then also a hedging aspect with Precious Metals and the gold side in commodities. We thought the risk budget was going to be better allocated in commodities. Now, we have to reassess as things continue, whether the cyclical outlook will be supportive enough for us to retain that. But for the moment, this is the rationale the us into commodities that brought us into commodities rather than equities. Manus i quite like this reading. We are debating the Goldman Sachs point about whether we have more than days, taking us down another 25 or 35 basis yields. N treasury you say that barring the recession, we expect Government Investment grade bonds to show meager returns over the tactical horizon. When you see the nearrecord lows in 10year yields, what do you do . Nanette for sure, we are underweight government bonds. Government bonds have in, in many countries, like my home country, switzerland, where you have negative yield, they have been more of an insurance in portfolios than they are a source of yields and a source of income. We have found, and we reiterate that at these levels, it seems to us that an underweight position is reflecting this new function they are having, not eliminating them completely from portfolios, because they are an important source of stability, of insurance, if you want, but then also not being too exposed. Because if we are coming to a the case is registered in terms of the viral outbreak are hitting a peak, then yields could be spiking up quite fast. So this is what you have done with respect to government bonds, preferring much more to look at alternative sources of income both in credit but also in real estate. Nejra interesting. She stays with us for the hour. Now lets get to the first word news. Harv wednesday and has been coveted of rape and a criminal sexual act, more than two years after allegations sparked the metoo movement. He was acquitted of the most serious charges including predatory sexual assault. He is due to be sentenced in march 11. He plans to appeal. Manus u. K. Prime minister Boris Johnson is facing complaints of bad faith ahead of the trade talks with the e. U. The two sides are incredibly accusing each other of backing away from past promises. Johnson rosie Spokesman Says of regaining political independence from the e. U. Would take priority over securing a trade deal. Nejra rhetoric between Democratic CandidatesBernie Sanders and Michael Bloomberg has escalated. Bloomberg criticizing sanders gun control record. Sanders suggesting bloomberg could not win a debate against president trump. Sanders is the favorite in most super tuesday states, where bloomberg will appear for the candidate. As a a reminder, bloomberg is a majority owner of bloomberg lp. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Coming up, paris is forging ahead with fashion week despite concerns around the coronavirus. The stories you need to know. Next. This is bloomberg. Manus this is daybreak europe. I am manus cranny in dubai. Nejra and i am nejra cehic in london. We are seeing weakness in asia led to japan. U. S. Futures pointed to a comeback, u. S. Stocks yesterday and european features in the green. 10 year yield back up slightly after moving toward a record low yesterday. The 30yearold hit its record low. Oil is on the front foot. Manus this group says they want risk. Long yen into this lets discuss the policy response to the coronavirus. Because you have the virus hammering the world secondbiggest economy. Top leaders in china edged to be more proactive in using fiscal policy. In europe, ecb officials want governments that Monetary Policy warned governments that Monetary Policy cannot be the only response. The head of the ecb says the situation is a call to arms. U. S. , fedthe president Raphael Bostic says the u. S. Economy is pretty good and that he has no impulses to change the Interest Rate. He says that while the coronavirus outbreak represents a threat to the u. S. Economy, it does not justify a change to the yet. Y at this point it is difficult to assess the magnitude of the economic effect, but the new source of uncertainty is something i will be carefully monitoring. Nejra Nannette Hechler from Credit Suisse is still with us. Pricing bond market is two rate cuts from the fed next year. Dovishfed does not turn in its outlook within the next three months, what kind of onact would it have the market . Nanette i think it would concern all asset markets because of the growth implications of it, because of the signal that the fed would be sending, it is not there to used in the fed put that to be the stabilizing force oftentimes. As yield curves have turned negative, reflecting the growth concerned, if the Federal Reserve is not changing the rhetoric a little bit to be attentive to what is taking place in terms of growth worldwide, not just in the u. S. , stillhis may very well nourish volatility in equities. Manus that volatility was resplendent. We have in certain asset classes, argued u. S. Exceptionalism, u. S. Splendid isolation in the equity market in terms of policy response and growth. That is a risk, isnt it, that the coronavirus could smash that exceptionalism. Nanette yes, there are certain characteristics of the u. S. Economy that simply are not the same as in europe are as in a number of emerging markets. This characteristic is that, this is a very large economy that depends enormous it on its own domestic economic conditions,on the consumer in the u. S. Therefore, for as long as the u. S. Is doing well in terms of the labor market and in terms of the conditions that feed a good Consumer Sentiment, the exceptionalism of the u. S. Economy, the extraordinary resilience may likely to be continued. I think it is where it might be catching up with the u. S. , is ,here inflation, where the u. S. It is obviously exposed to chain production, is in the delivery and imports of goods. That could be what eventually brings and feeds the rest of the worlds conditions into the u. S. Economy. Nejra so the rest of the worlds conditions might feed into the u. S. Economy. If they dont, should the fed cut nonetheless, or should it let other Central Banks carry the burden . If it does, will that satisfy investors . Nanette we have seen in the past that the fed does get influenced by what the curves are signaling. If the yield curve stays negative for a long time, that may very well be, in the first place, a rationale for the fed to take stock of the risk in the rhetoric. Often times, we have seen a sequencing in the u. S. Fed actions with rhetoric, and only , furthert period signals with Growth Outlook and thents, eventually, action. So i think that in the next is a sequencing that we should be anticipating. Nejra coming up, gold retreats, as investors weigh the outlook for the coronavirus. We will talk commodities next. This is bloomberg. Nejra this is bloomberg daybreak europe, i am nejra cehic in london. Manus i am manus cranny in dubai. Possible use of a vaccine, that is 18 months away. This is from the Vice President of this company commenting in a rigid interview. He says the company is about growth and security, but 1218 months, that is a long way away in terms of the vaccine. This is the debate. We heard this from the novartis ceo as well, which is why we have these moments, dont we . Through this huge amount we throw this huge amount of effort at finding vaccines. But this has caught the world unawares. Nejra every time you get headlines about a vaccine, it seems to be what feeds into some of the riskon in the markets. Compared to yesterday, the riskon his muted. Nevertheless, god has retreated from its highest levels old has retreated from its highest levels. Gold moving through seven 200 and perhaps into the 2000 range, i would not move it will it out. We are very highly leveraged to the gold price. It doesnt change how we are running our business. Nejra Nannette Hechlerfaydherbe they still with us. The you hold gold in the portfolio as protection to diversify, given your underweight bonds . Nanette gold is part of commodities and commodities is part of alternative investment at Credit Suisse. We see it as an excellent diversifier which is one of the commoditieslso have commodit as a good consummate in the portfolio. It reacts to factors that are different from the rest of the portfolio and drivers. To Interest Rates in the u. S. And to the dollar. When you are in a period a period of riskoff as we are now, when Interest Rate cuts are being priced in, then gold is reacting positively because of what is driving the price of gold. Manus can i ask you, the oil markets are in flux. We are going to be a next week, we will discover what action opec might take. You look at oil and you look at the super cycle in commodities and oil, what shifted for you . Nanette the oil market for us is always one where demand is in some sense the driving force, then supply is adjusting to it. It is the market that gets balanced it is a market that gets balanced relatively, with a couple of months of delay. My expectation is that if we are now in a period where people are adjusting their Growth Outlook for example, we have revised our Growth Outlook for china down from 5. 9 for 2020 to 5. 5 growth, that has implications for oil demand and hence it is likely that oil supply will be adjusting down in terms of production. But thisis a delay, balancing mechanism in the oil market is what is also the stabilizing eventually prices. Manus let us see what balance in things to bear next week.